Blog

Friday, 24 February, 2012 | 5:00 P.M. ET
Common Insurance Mistakes We All Make

We all know we need insurance but it’s not usually at the top of our priority list. Insurance is a valuable tool to protect our families from unforeseen events that can severely damage their financial futures, but it does not often get much of our attention. We have compiled a list of common insurance mistakes so you can determine if you are currently making any of them and hopefully properly insure you and your family before it is too late.

• Not having any life insurance – Life insurance has two basic purposes: to provide estate liquidity and to provide sufficient assets for a surviving family to live on after the wage earner has passed away.
• Having too much life insurance – If substantial assets are accumulated, then survivors may already be adequately provided for.
• Not having life insurance on a non-working spouse – The value of a “non-working” spouse, which can be substantial, is often overlooked.
• Buying life insurance on children – Such coverage rarely makes economic sense unless the policy pays interest which is tied to current market rates. The premium dollars could be better spent by contributing to a custodial account for the child’s future education needs.
• Underinsurance of personal residences – Most homeowners obtain homeowner’s coverage and then forget about it. They may fail to realize that if construction costs increase at 8% per year, the replacement cost of a property doubles every nine years. Determine what your house (not counting the land) is really worth and then see if it matches your coverage.
• Having medical insurance with inadequate lifetime limitations – With the ever-increasing cost of medical care, it is easy to incur very high expenses for an extended hospital stay. Many policies cover only $100,000 to $150,000. The minimum coverage an individual should have is $250,000 to $500,000.
• Not having disability insurance – You’ve probably heard it before. Your family’s single greatest asset is more than likely your ability to earn a living.
• Having a disability policy with too restrictive a definition of disability – Many policies cease coverage if the insured can perform any occupation after the second year of coverage.
• Holding a disability policy after retirement – Make sure you aren’t paying premiums in retirement.

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Thursday, 9 February, 2012 | 5:00 P.M. ET
Is It Time Yet?

Refinancing, is it time yet? An oft quoted rule of thumb is that a borrower should consider refinancing if interest rates fall more than two percent below the original rate. This rule of thumb is really too simplistic to have much meaning. The question really involves comparing the after-tax savings in the monthly payment to the closing costs of the refinancing.

There are numerous costs in any mortgage financing. These costs may include loan origination fees, application fees, credit checks, appraisal fees, attorney fees, title insurance, transfer taxes and others.

The lender may also charge discount "points" that amount to prepaid interest. These points can run 1% to 3% of the loan.

Points, unlike loan origination fees, are deductible as interest. However, the points that are paid upon acquisition of a home are deductible in a lump sum. Points on refinancing are deductible over the life of the new loan. The total closing costs on a refinancing can easily run 4% to 5% of the loan amount, although you may be able to get a break by careful shopping or dealing with your current lender.

To really compare apples to apples, you should compare the after-tax cost of the new mortgage with the old. Since mortgage interest is deductible, the after-tax cost of the loan equals the principal and interest payment after deducting the taxes saved attributable to the deduction. The computation is fairly simple in most cases. The number-crunching gets a little more complex if the change in mortgage interest deductions causes you to cross over into another bracket, but the theory is the same. State taxes should also be considered if your state allows a deduction for home mortgage interest.

For example, Tim originally borrowed $103,000 for 30 years at 9.5% four years ago to buy his home. Today he can refinance his home for 30 years at 5.5% at a total cost of 4% of the loan amount. Tim's

loan balance today is $99,982. He is in the 25% tax bracket. The cost to Tim to refinance is $3,999 (assume no deductible points). Tim decides to refinance a total of $103,981 ($99,982 + $3,999). His

current monthly mortgage payment is about $866 of which about $792 is interest. That makes his aftertax payment about $668 [866 - (792 x 25%)]. His new mortgage payment will be about $590 of which roughly $477 will be interest, for an after-tax cost of $471. Tim will be saving, after tax, about $197 per month. At that rate, it will take about 20 months (3,999/197) before he breaks even. If Tim plans to stay in the house longer than that, then refinancing makes sense.

Of course, this brief article is no substitute for a careful consideration of all of the advantages and disadvantages of this matter in light of your unique personal circumstances. Before implementing any

significant tax or financial planning strategy, contact your financial planner, attorney or tax advisor as appropriate.

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Tuesday, 25 October, 2011 | 5:00 P.M. ET
Social Security Announces 3.6 Percent Benefit Increase for 2012

Cost-of-Living Adjustment is First Since 2009
Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012, the Social Security Administration announced today.

The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.

Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.

Information about Medicare changes for 2012, when announced, will be available at www.medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.

The Social Security Act provides for how the COLA is calculated. To read more, please visit www.socialsecurity.gov/cola.

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Friday, 1 July, 2011 | 2:00 P.M. ET
My First Job

As the school year ends, the opportunities of moving to the next stage in life are being presented. This could mean that first full-time job after high school or college or a change in jobs. Typically, as part of this process, the decision whether to participate in the company retirement plan is given.

If this is your first full-time job, the questions come up about putting this money aside for an event (retirement) that is going to happen 40-50 years from now or wait until later and use the money for more important things now. The more important things could include items such as; buying a new car, buying a house, paying off school loans, taking that big trip before starting my "working life". The list goes on...

Back in the old days, you know, 15-20 years ago, pensions were typically part of most company's compensation package. You work for a company for 30 years, you retire, get a gold watch and a monthly check. Now, most people don't spend their working career with the same company and most companies don't provide a defined benefit (monthly check) retirement plan anymore. So what are they offering instead?

Most businesses now offer some type of retirement plan (401(k), 403(b), SIMPLE, SEPs) that consists of the employee contributing a portion of their own paycheck and the company may make some type of contribution or match (free money). If you leave the company, your contributions go with you and depending on how long you were with the company (vested) you may get a portion or all of the company's contributions as well. You can then roll this money into your new company's retirement plan (if they allow it) or roll it to an Individual Retirement Account (IRA). The important thing to remember is that this is your retirement money, not a new found bag of cash.

Time and time again, we are asked, "Can $25 a pay really make that big a difference?" Only to talk to that same employee 5 years later and have them ask, "Have you seen how much money I have in my retirement account?" Time plays a very important part in the growth of your retirement account so the sooner you start, the better off you are.

I know that 52 inch flat screen TV is just calling your name but the reality of a comfortable retirement many years from now doesn't start then, it has to start now. If you don't do it, no one else will.

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Tuesday, 7 June, 2011 | 5:00 P.M. ET
A Day in the Life of the Red, White and Blue

It took three presidents and 172 years to establish a national day of recognition devoted to the American flag, something to keep in mind, perhaps, if you plan to honor the flag on June 14. In fact, that date is one of the few consistent elements in the story of the flag as it evolved in meaning and underwent its numerous star field design changes.

Flags, beginning approximately 3,000 years ago, historians say, served as identification signs or signals. In time, they were adopted by groups of people to help distinguish themselves from others, especially on the battlefield or at sea. The idea that a flag should represent a nation and the perception of its character took hold in the 18th century.

Thus it was that in Philadelphia, the Continental Congress outlined a flag for the new nation, resolving that "the flag of the United States be thirteen stripes, alternate red and white, that the union be thirteen stars, white in a blue field, representing a new constellation." The date was June 14, 1777.

The year before, in 1776, George Washington is said to have visited Philadelphia seamstress Betsy Ross to persuade her to sew the first flag. Some historians doubt that, but most credit the widow Ross with having persuaded the future president and his small band of patriots to switch to a five-pointed star rather than use the six-pointed star then in vogue.

It wasn't until 1916 that the flag gained a national day of recognition through a proclamation issued by President Woodrow Wilson. Finally, in 1949, President Harry Truman signed an Act of Congress designating June 14 as National Flag Day.

Whether you plan to take part in Flag Day ceremonies or are content to merely make a mental note that there is something special about the day, We wish you well on June 14, and every other day in June.

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Friday, 18 March, 2011 | 10:00 A.M. ET
2011 Estate Tax

Well, as you may or may not know, the Federal government finally made a decision on which direction to go with the Federal Estate tax. A vote on December 17, 2010 for the 2010 Tax Relief Act set the federal estate tax rate at 35% with an exemption amount of $5,000,000 for 2010, 2011 and 2012. While this new exemption limit excludes most Americans, we shouldn't get too excited because if Congress doesn't act, the new exclusion limit will reduce to $1,000,000 effective January 1, 2013 with a tax rate of 55%.¹

What does this mean for the average American family? It means that if you die in 2011 and your taxable estate is valued at less than $5,000,000, then you are exempt for any Federal Estate taxes. That doesn't mean your estate is exempt from state estate or inheritance taxes and these differ from state to state. Pennsylvania has both an estate tax and an inheritance tax. For those individuals that died on or after January 1, 2005, the Pennsylvania estate tax is zero.²

The Pennsylvania Inheritance tax depends on the relationship between the decedent and the beneficiaries. The rate for assets going to the surviving spouse is 0%; 4.5% for lineal heirs (kids, grandkids, etc.); 12% for siblings (brothers and sisters) and 15% for collateral heirs (everyone else).²

¹ H.R. 4853 Sec. 302

² PA Department of Revenue

The preceding data is provided to you for informational purposes only. Although it is derived from information which we believe to be accurate we cannot guarantee its accuracy. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein; as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

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Thursday, 17 February, 2011 | 12:50 P.M. ET
Tax Day is When??

Traditionally, the Federal Income Tax filing deadline is April 15th; not this year. Due to the observation of Emancipation Day in the District of Columbia, the deadline has been moved to midnight, Monday, April 18th.

The municipality of D.C. will be honoring Emancipation Day; the day in 1862 that President Abraham Lincoln signed the Compensated Emancipation Act. This bill ended slavery in the District of Columbia. Several states and Caribbean countries have holidays in celebration of freedom from slavery.

How will this affect you? The answer is – it probably won't. Even though the Federal government has extended their deadline, you still must have your state income tax returns filed by April 15th. So, when you drop those state returns in the mail, you might as well drop the Federal forms in too!

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